When you finally get to retire, it’s a big time to celebrate. Many people now have the time they need to go travel and do the things that working a 9-5 didn’t allow. When you’ve saved up for this day, your house is paid off, and you have a bucket list that needs to get checked off, it can be hard to decide the right path forward. Many people don’t realize that they can use the equity in their homes to fund their retirement. This is good news because for many, traveling during retirement is essential. Here are some best practices when it comes to using home equity in your retirement to help you see and experience new places:

What is a Home Equity Loan?

A home equity loan is a type of loan secured by the amount of equity in your home. Whether your home is 100% paid off, or you’re still working on it, you may be able to use your equity during retirement to fund your travel plans. There are different types of home equity loans. You can get a one-time lump sum payment or leverage home equity lines of credit. Then there is also the option to do a sale-leaseback instead. Each of these options has risks and benefits that need to be evaluated before you decide on the right plan for you.

Home Equity Loans are Safe and Secure

If you’re looking for a safe and secure way to fund your retirement, consider a home equity loan. Unlike credit cards, this type of loan doesn’t have the same steep interest rates. Most of the time home equity loans are lower interest which makes it cheaper to fund your retirement travels. Plus if you’d prefer a more credit card style of loan where you can borrow and repay the loan regularly, a HELOC is often a great option for people during retirement.

How Much Can I Borrow?

It depends. If your loan is paid off, you’ll have access to more of your home’s equity than if it weren’t. Plus, if your home is over a certain age, you can often borrow a higher percentage of the equity versus a newer home. It also depends on the type of mortgage loan you have. FHA and VA loans have some exceptions when it comes to borrowing with a home equity loan. The amount you can borrow is usually a percentage of your total home equity.

Should I Use a Fixed or an Adjustable Rate Loan?

When you’re retired, a fixed-rate loan tends to be more beneficial. Since it has the same rate, you’ll know exactly how much you need to pay back each month. This can be helpful when it comes to financial planning and ensuring that you have enough money during retirement for travel and living expenses. Adjustable rate home equity loans can be more difficult to budget for. This means that you won’t be able to plan as easily for future expenses and trips than if you had a fixed-rate loan.

Differences Between HELOC and Other Home Equity Options

If you’re thinking about using a HELOC to fund your retirement, it’s important to know how they differ from other home equity options. Home Equity Lines of Credit (HELOCs) are loans against your home. They can be used for any purpose and paid back over time with interest rates that may fluctuate. Unlike other types of mortgages, HELOCs don’t require regular set payments. Instead, they allow homeowners access to cash as needed via revolving lines of credit. As the equity in the home increases, the availability of funds in the HELOC may increase as well. Using them is similar to using a credit card, however, the interest rates are much lower.

Don’t Use More Than Half of Your Home’s Equity for Travel

One best practice when it comes to traveling during retirement is not to use more than half of the equity in your home for travel. Being able to go on trips and come back home is one of the best parts of retirement. Some retirees even choose a sale-leaseback agreement to take out all of the equity in the house to be used for travel. They then get to stay living in their home and rent it from the bank or new owner instead.

Have a Plan for Your Travel Expenses

You have to have a plan, and you need to stick to it. It’s too easy to max out the equity in your home for extravagant vacations if you aren’t careful. Plan each of your trips with intentionality to ensure that you don’t put your home at risk of default and that you can enjoy retirement instead of eventually needing to go back to work to get the bills paid.